US Airways and America West to Merge, Creating No. 5 Airline

US Airways and America West said today that they planned to merge in a $1.5 billion deal that would create the nation's fifth-largest airline.

The deal was the first significant merger in the airline industry in four years and it could mark the start of a long-expected wave of industry consolidation.

Together, US Airways, the nation's seventh-largest airline, and America West, the country's eighth-largest, would have 361 planes and 44,000 employees.

The two airlines will operate under the US Airways name, but be based at America West's headquarters in Tempe, Ariz. The airlines said in a joint statement that they would coordinate their schedules and eventually merge their frequent flier programs, and that members of their plans would keep their miles.

"A combined US Airways and America West places the new airline in a position of strength and future growth that neither of us could have achieved on our own," said W. Douglas Parker, the chief executive at America West, who will run the combined airline as chief executive and chairman.

Bruce Lakefield, the chief executive at US Airways, who would become vice chairman of the combined airline, said in the statement that the merger would "bring more choices for customers."

The two airlines, which have been in talks since last month, announced the merger after a meeting by America West's board in Phoenix today. US Airways' board met to discuss the arrangement on Wednesday.

This is the first major deal in the domestic airline industry since American Airlines bought the assets of Trans World Airways in 2001. That deal made American the industry's biggest carrier.

Five years ago, US Airways agreed to be acquired by United Airlines, but it dropped that deal in 2001 after the Justice Department moved to challenge it in court on antitrust grounds.

The deal between America West and US Airways would be backed by $350 million in new equity from a quartet of investors, as well as a loan from Airbus, the aircraft manufacturer. In return, the combined airline would become the first customer for the new Airbus A350 medium-range plane, with the first arriving in 2011.

The companies said the Retirement Systems of Alabama, which has been the major investor in US Airways, could invest in the new airline.

Mr. Parker said this afternoon in a conference call with reporters that there would be some job reductions after the merger is completed, but that the two airlines did not expect "major furloughs."

But obstacles to the US Airways-America West deal remain. The deal requires approval by a federal loan board, which granted loan guarantees to both airlines following the Sept. 11, 2001, terrorist attacks in New York and Washington. Together, US Airways and America West owe more than $1 billion on their federal loans.

A spokeswoman for the loan board said it was reviewing the deal and "will continue to work with the airlines to make sure that taxpayers' interests are protected."

During the conference call, Mr. Parker said it was not likely that the two airlines would repay all of their $1 billion in outstanding loans backed by the federal government.

The deal also requires approval by a federal bankruptcy court in Alexandria, Virginia. US Airways, which is based in Arlington, Va., has been operating under bankruptcy protection since last September, its second Chapter 11 bankruptcy in three years.

Given that, the deal could generate other offers for the combined airline, or for US Airways itself.

If it goes through, the deal would lead to a new national airline, boasting low costs and promising low fares, with operations divided between the West Coast, where America West is focused, and the East Coast, where US Airways has long been one of the dominant players. US Airways also operates flights to Europe, the Caribbean, Latin America and Canada, where America West also has some flights.

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The two airlines would have primary hubs in Phoenix, Philadelphia and Charlotte, N.C., and secondary hubs in Las Vegas and Pittsburgh. It also would have focus cities, with fewer flights than hubs, in Boston, New York, Washington and Fort Lauderdale, Fla.

For the past few years, industry executives, including Mr. Parker, America West's chief executive, have contended the industry was sorely in need of consolidation so that it could eliminate excess seats. And, the deal could prompt other airlines to examine whether they need to combine.

But the deal in reality would do little to reduce service, except to remove one name from airport concourses, industry analysts said. It has brought to mind Delta's purchase in 1985 of Western Airlines, then headed by Delta's current chief executive, Gerald A. Grinstein, and US Airways' purchase of Pacific Southwest Airlines, a well-regarded West Coast carrier, in 1987.

The US Airways-America West deal may mimic what happened when American purchased the assets of bankrupt T.W.A. in 2001. It eliminated dozens of flights, particularly at T.W.A.'s home base in St. Louis and laid off thousands of T.W.A. employees.

Those moves created labor unhappiness at American and the same could happen at US Airways and America West.

Though they have the same unions representing pilots and flight attendants, each has a different union for mechanics - the International Brotherhood of Teamsters at America West, and the International Association of Machinists and Aerospace Workers at US Airways. That could lead to immediate disputes over seniority and assignments. The airlines said today that this would be sorted out over time.

Today, the Air Line Pilots Association said it would scrutinize the deal and make sure its members were protected.

"We're anxious to become a partner in what could become the country's premier low-cost carrier," said Jack Stephan, a spokesman for the pilots union at US Airways.

US Airways is the descendant of a company formed in 1939 to provide mail service to western Pennsylvania. Eventually known as Allegheny Airlines, it changed its name to US Air in 1979, a year after industry deregulation, and US Airways in 1997.

It swelled through mergers with companies such as Piedmont, Mohawk, Empire and Pacific Southwest, taking a dominant East Coast stance with routes blanketing the Northeast and the mid-Atlantic states.

But the airline continually suffered financial problems and was beset by the highest operating costs in the industry. Hit hard by the September 2001 attacks, which shut down Reagan National Airport in Washington, one of the airline's key points of operation, US Airways filed for Chapter 11 bankruptcy protection in 2002. Though it emerged in 2003, with the help of $900 million in federal loan guarantees, the airline ran into stiff competition from low-fare airlines on its East Coast routes, and filed for bankruptcy protection again last September.

America West was one of the first airlines founded after the industry was deregulated by President Jimmy Carter in 1978.

It began flying in 1983, based in Phoenix, with 280 employees. three Boeing 737 planes and service to five cities. It grew steadily throughout the 1980's but hit financial problems when the industry was hit by a downturn in the early 1990's. It filed for bankruptcy protection in 1991 and emerged three years later, expanding its network and establishing a marketing alliance with Continental Airlines.

By 2001, America West had 13,500 employees, 144 planes and flights to 172 destinations. But the airline, like others, was hit hard by the drop in business following the terrorist attacks. It became one of a handful of airlines to obtain a loan guarantee package.

Late last year, America West investigated a merger with ATA Airways, which sought bankruptcy protection in October. But America West subsequently chose not to make an offer for operations at ATA, which ultimate sold some of its gates at Midway Airport in Chicago to Southwest.